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A bank guarantee enforced pending a request pursuant to Art. 169-bis of the Italian bankruptcy law is a “pending contract” ?

The Tribunal of Milan with a decree of 17 September 2015 ruled that the enforcement of a bank guarantee, pending therequest by the debtor to authorize the stay or termination of the same in a concordato preventivo procedure, bars thedecision by the Tribunal

The case

A company filed a petition to authorize a stay and then the termination of several pending contracts within a concordatopreventivo procedure, including those relating to a loan connected to the acquisition of a shareholding in a foreign company, based on the typical scheme of loans granted by SIMEST S.p.A., the state-owned company participating in such investments.

After the initial request to authorize a stay, based on a concordatopreventivopre-filing, and after the Tribunal had fixing the hearing, but had not decided on the request of the debtor, SIMEST S.p.A. enforced the bank guarantee. The company challenged such an enforcement and filed also a request to authorize the termination of the contracts, along with the filing of the concordatopreventivoplan and proposal.

The Delegated Judge granted the requested authorization.

The bank appealed the order to the Tribunal, arguing that the facts at issue did not fall within the scope of the power of the debtor to be authorized to stay or terminate pending contracts.

The issues

Several uncertainties surfaced in case law as to the exact notion of a “pending contract” for the purposes of the rules set forth by Art. 169-bis IBL regarding the stay or termination in the context of a concordatopreventivo procedure. The case at hand raised a peculiar issue, regarding the consequences of new facts occurred pending the request by the debtor.

The decision of the Tribunal

The Tribunal of Milan upheld the appeal of the bank, stating in summary (i) that the bank guarantee is no longer a pending contract following its enforcement, considering that Art. 169-bis IBL can be applied only when both parties still have to fulfil at least in part their own contractual obligations, and (ii) that the order of the Tribunal granting the authorization could not have effects reaching back in time from the moment the request was filed by the debtor, but can only provide for the future.

When a debtor, such as in the case at hand, files a request to be authorized to stay or terminate a pending contract and, in the meantime, a complete performance or termination of the obligations on the side of one of the parties to the contract occurs, then the contract is no longer a “pending contract” pursuant to At. 169-bis IBL and, as a consequence, the Tribunal can no longer issue an order on the request by the debtor, because the filing of the request does not “freeze” the status of the contract being considered as a pending contract.

Commentary

The decision by the Tribunal – in a case to which rules in force before the amendments of Law Decree No. 83/2015 applied – follows the mainstream interpretation, which the lawmakers introduced in the new rules now in force, as to the point in time when the order of the Tribunal becomes effective. In this respect, the new rules have not addressed the issue raised by the decision here at hand.

The solution offered by the Tribunal of Milan may raise some concerns, if one considers that the other party to the contract, after the request has been filed by the debtor, can unilaterally frustrate the effects of the decision which the Tribunal is called on to issue.

Compare jurisdictions: Arbitration

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